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Germany-China: Struggling to shake off Beijing dependencies

Mischa Ehrhardt
April 13, 2023

The economies of China and Germany have become hugely intertwined. The dilemma: how to reposition Germany in the emerging geopolitical tensions with Beijing.

A forklift carrying a Chinese container in the Duisburg port in Germany
Economists agree that cutting Germany's business ties with China is impossible for the foreseeable futureImage: Maja Hitij/Getty Images

French President Emmanuel Macron sparked massive anger in the week after Easter suggesting that Europe should not be a "vassal" in the US-China geopolitical rivalries. The continent, he said, should avoid being drawn into the two nations' conflict over Taiwan

Little wonder, then, that the French president has invited criticism from many quarters for speaking his heart as a European, including from certain political circles in Germany. But many of this country's corporate heads and business leaders would rather agree with Macron's view than disagree.

"If we no longer have China, prosperity in Germany will decline," said Holger Engelmann, who is the CEO of automotive supplier Webasto. He knows what he is talking about because Webasto — a family-owned business based in Stockdorf, Germany — generates more than a third of its sales in China, where it also operates a total of 11 factories.

China: Economic friend or foe?

Import dependency on China

For Germany, China is the world's most important trading partner. That's followed by the United States, which has been catching up slightly in recent years. In terms of imports from the Asian powerhouse, one can rightly say Germany is dependent on China. That's the dilemma facing German Foreign Minister Annalena Baerbock on her current visit to China, where she will sound out opportunities for future cooperation while also trying to reduce Germany's overreliance on Beijing.

Carsten Brzeski, an economist at Dutch ING bank, describes the dependency as "extremely high," especially regarding raw materials and intermediate products. "It is significantly stronger than, for example, the American dependency on China. And it is also greater than the French dependency on China," he told DW.

Chinese workers assembling a VW car in the company's Shanghai factory
In 2022, German car companies Volkswagen, Mercedes and BMW sold almost 40% of their cars in ChinaImage: picture-alliance/dpa/O. Spata

China has long shed its image as the world's workshop serving mainly industrialized nations like Germany. With its "Made in China 2025" plan, Beijing has embarked on a state-led industrial policy that seeks to make China dominant in global high-tech manufacturing.

'No energy transition' without China

For some sectors, the plan is already bearing fruit. In the production of batteries for electromobility, for example, Chinese manufacturer CATL alone supplies around a third of all the batteries needed worldwide for electric cars. Around 80% of the lithium-ion batteries for electric vehicles worldwide come from China.

"Without China, there would be no electric cars," said Brzeski. "Without China, there is no energy transition, without China, there are no solar cells on our roofs."

For Brzeski, it's clear that Germany's economic ties to the country cannot be severed, "especially not in the short term."

Mikko Huotari, the executive director of the Mercator Institute for China Studies, thinks that "minimizing risks" should be the order of the day in the current "difficult situation" regarding China.

"We are in this double game at the moment: on the one hand, stability, also business relations. But at the same time, trying to reduce our own vulnerabilities here," he said in a recent interview with German public radio broadcaster Deutschlandfunk.

A worker holding a photovoltaic cell at a factory in China
China has gained world dominance in solar panel production with a policy mix of cheap loans and massive export subsidiesImage: dpa/picture alliance

But Germany has only little room to maneuver, said Brzeski. "Since the outbreak of the war in Ukraine, the first reflex was to say: 'Now we have to focus more on friendly countries and end or reduce our dependency on China.' But that is not possible at all," he stressed.

West's new caution on China

Conversely, however, many Chinese companies have vested interests in Germany and the European market, and have gained access through a number of acquisitions and ownership deals.

The takeover of the world market leader for industrial robots, Augsburg manufacturer Kuka, by the Chinese Midea Group was considered a sensation back in 2016. But seven years later, Germany's flagship carmaker Mercedes-Benz now has two Chinese investors as its largest shareholders.

Maersk Container Industry sale to China blocked

Although fears in Germany of heavy-handed influence from Beijing have never materialized, investors from China are increasingly viewed with askance. Amid mounting geopolitical tensions, especially over Taiwan, and pushback against China's growing influence in the developing world, Western governments are striving to contain Beijing's expansion — or at least keep its companies away from domestic markets and critical infrastructure.

With a new and multipolar world in business and politics only just beginning to emerge, Germany has yet to define its place in it.

This article was originally published in German.